Private exchanges ‘more likely to protect competitive edge’

Big, open trading exchanges where buyers hunt down the lowest-cost supplier in so-called reverse auctions could turn out to be completely irrelevant to much of industrial purchasing.

Big, open trading exchanges where buyers hunt down the lowest-cost supplier in so-called reverse auctions could turn out to be completely irrelevant to much of industrial purchasing, experts have warned, with a strong likelihood that many of the newly-announced ventures will go bust.

Instead, the pattern of internet-driven purchasing is more likely to be found in the formation of large private exchanges, set up within an existing supply chain where partnerships and trust have already been established between buyers and seller.’The relationships that exist within a company’s supply chain are a unique competitive advantage,’ said Marc Carlson, a regional vice-president at Ariba, specialist in e-marketplaces. ‘The likelihood is that we’ll see more private exchanges being formed, but with some connections to the public ones.’

The much-quoted ‘transparency’ of information that is seen as an essential part of the e-business supply chain is also being met with scepticism.

‘I don’t subscribe to the view that information will be freely available,’ said Alan Amling, director of electronic commerce at UPS. ‘There is a fundamental human factor in this, and that is everybody wants to win. The question is how to disseminate information, but protect what gives you an advantage.’

The plethora of new trading exchanges announced — well over 1,000 globally — has led to growing doubts about their long-term durability. Analysts believe that less than 100 are doing any business, while the consortium-based exchanges such as the automotive industry’s Covisint run by the biggest players in a given market look set to be the most durable.

Many firms are also becoming worried about the amount of time that has to be devoted to adapt their operations to interface with new exchanges — making the question of durability a pressing issue. Steve Larson, director of e-supply chain at 3M, said all 17 business divisions within 3M had to be rolled into a single ‘virtual division’ that would be able to communicate with the Covisint exchange. ‘We have had to completely revise how we run our business processes,’ Larson said.